Currencies

Portugal’s Caixa Geral de Depósitos (CGD) issued a €1bn seven year covered bond, the longest seen from any Portuguese issuer in four years. And at 1% it was also the lowest coupon ever paid by a Portuguese covered bond issuer. The comfortably oversubscribed deal offered a new issue premium of 3bp to 4bp. However, rival bankers said the spread looked unattractive relative to government bonds which are should benefit from prospective central bank buying.

Covered bond issuers from outside the Eurozone launched deals this week denominated in sterling and Australian dollars. But a bigger proportion were from the Eurozone where borrowers launched deals in the single currency in maturities that ranged from four to 20 years. The transaction were priced generously and enjoyed a solid reception, with central banks taking a back seat.

The covered bond primary market maintained robust momentum on Thursday as another four issuers priced deals. The seven year tenor remains the firm favourite with two new trades on Thursday taking the total to eight this year.

Bank of Montreal (BMO) and Caisse Française de Financement Local (Caffil) respectively issued one of the shortest and longest covered bonds of 2015. BMO’s five year appealed to a wide audience enabling the borrower to issue a large €1.5bn deal. Though Caffil’s €500m 20 year appealed to a smaller audience, the very high quality investor base it appeals to bodes well for the deal’s long term performance.

Sekerbank is holding investor meetings for a covered bond which will be the bank’s first ever publicly syndicated deal targeted at investors in the private sector mainly in Europe. The deal takes advantage of the amended law which allows for greater use of derivatives in the cover pool.

Cajas Rurales Unidas is set to become the second Spanish issuer to launch a deal this week, having mandated leads for its third euro benchmark. The transaction is likely to offer the most attractive spread seen in covered bonds this year, and could reprice the issuer’s curve.

The European covered bond market kept up its momentum on Tuesday as four euro-denominated deals hit the screens and books were opened on another denominated in Australian dollars. The euro deals all offered a new issue concession of around 5bp and were comfortably oversubscribed.

The European covered bond market got off to an exceptionally strong start on Monday as LBBW, Compagnie de Financement Foncier (CFF) and BBVA launched euro benchmarks across a range of maturities, without a hiccough. The strong start bodes well for Tuesday when several more euro benchmarks including Bank of Ireland and BPER are due.

Westpac successfully priced the first euro-denominated covered bond of the year on Thursday amid hopes that it will set a positive tone for next week — which is expected to be the busiest of the year. But with confidence still lacking following a string of underperforming deals issued at end of last year, there is still some trepidation that the supply glut will cause a further re-pricing.

Covered bonds were always likely to be eligible assets for Basel III’s Liquidity Coverage Ratio, but when the final wording appeared it turned out to be much better than expected for the product. The long term implications are positive for the asset class, but a near term surge in demand is unlikely, writes Bill Thornhill.

Westpac was set to price the first euro-denominated covered bond of the year on Thursday in a move that is likely breathe confidence into the market, following a disappointing end to 2014.

A large part of a bank’s asset encumbrance is hard to measure and this may lead regulators to focus on one of the most visible and transparent components of encumbrance: covered bonds, according to a paper from the European Covered Bond Council published on Wednesday. The trade association urged European policy makers to take a holistic approach to assessing encumbrance and said a hard encumbrance cap should be avoided.